HomeContributorsFundamental AnalysisRisk Improves, As Omicron Fears Fade

Risk Improves, As Omicron Fears Fade

Market movers today

  • The German ZEW index may resume a declining trend after last month’s small rebound, a development seen in the similar Euro sentix indicator yesterday. New headwinds from Covid, weakness in China and declining real wages currently weigh on the German economy.
  • German industrial production could also surprise to the downside following a very weak reading on factory orders yesterday, which dropped 6.9% m/m and 1.0% y/y.
  • In the afternoon, we get US trade balance as well as unit labour cost.
  • In Sweden we get a lot of data during the morning: industrial production and orders, household consumption and GDP indicator. Norway releases Regional Survey and industrial production.

The 60 second overview

China: Yesterday, PBoC cut the RRR rate by 50bp for banks. It was widely expected it would come after a statement from premier Li Keqiang on Friday. We do not expect a lot of further easing from here, as China is also easing fiscal policy moderately (more infrastructure projects). Both China’ exports and imports grew faster than expected in November, as foreign demand remains strong. China’s exports are likely to stay strong over the winter if US goods demand stays high amid new outbreaks.

Increasing tensions with Russia The US and Europe are considering targeting Russia’s banks if president Vladimir Putin invades Ukraine. One possibility is to make it difficult for the banks to convert roubles for dollars and euros.

RBA: In Australia, RBA kept monetary policy unchanged but added that omicron is not expected to derail the recovery. This is a view we share, not just for Australia but globally, although new outbreaks over the winter may slow growth.

Equities: Strong start of the week for developed markets equities as a narrative of a less deadly covid-19 variant (omicron) is building. Recovery yesterday took place in some of the hard-hit sectors such as consumer service. Also, the stimulus in China contributes to increasing risk appetite. Vol came lower though VIX still at 27 and small cap outperformed large. Growth and momentum stocks still struggling as with value outperforming for its fourth consecutive day. In US Dow +1.9%, S&P 500 +1.2%, Nasdaq +0.9%, Russell 2000 +2.1%. Optimism continues to build in China this morning with Japanese and Chinese H-shares sharply higher. Both European and US futures are pointing to a green opening in cash markets.

FI: For most of the European trading session, it was mostly a waiting game. No significant data releases or headlines yesterday drove markets as we are all waiting for the central bank showdown next week, with specifically the Fed and the ECB meetings. The little volatility benefitted the periphery, led by Italy that also saw one notch upgrade from Fitch on Friday, leaving the BTPs-Bund spread tighter by 3bp.

FX: NOK, AUD and CAD rose vis-à-vis CHF and JPY yesterday where risk sentiment recovered further. EUR/USD slipped back below 1.13; EUR/SEK and EUR/NOK both fell back below 10:30 level.

Credit: The positive sentiment in credit extended into yesterday with iTraxx Xover tightening almost 4bp (taking it to 280bp) and Main 1bp (to 57bp). HY bonds tightened 1bp and IG 0.5bp.

Nordic macro

Sweden: A busy day on the Swedish agenda. We receive a bunch of October macro data, which will give us a first glance at Q4 developments. The releases include Production Value Index, household consumption and Statistics Sweden GDP indicator, which will summarize the first month of Q4 in GDP terms. According to hours worked and the trade balance, the Swedish economy has probably had a decent start to the quarter.

Additionally, SNDO releases data on the November borrowing requirement, where expectations are for a SEK14.6bn surplus. As the October figure surprised to the upside, the risks are probably tilted to the downside (smaller surplus) this time around.

Norway: Norges Bank’s regional survey has long been the central bank’s preferred leading indicator. We expect the survey to show a slowdown in growth as the bulk of the reopening effect is behind us. The latest wave of infections may also have pushed up uncertainty again, at least in parts of the service sector. However, we will be more interested in the results for capacity utilization, labour shortages and wage expectations (for 2022) as these could signal an upside risk to inflation in the medium term.


Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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